2014 (11) TMI 591 - HC - Income Tax

Allowability of claim of depreciation on guest house Held that - Following the decision in Britannia Industries Limited Versus Commissioner of Income-Tax And Another 2005 (10) TMI 30 - SUPREME Court - while the expression premises and buildings in sections 30 and 32 of the Income Tax Act, 1961 and the expression residential accommodation in the nature of guest house in sub-sections (3), (4) and (5) of section 37 can be similarly interpreted, a distinction has been sought to be introduced for the purpose of section 37 by specifying the nature of the building to be a guest house - The intention of the Legislature is clear and unambiguous - the intention was to exclude from deduction the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of a guest house of the nature indicated in subsection (4) of section 37 - If the Legislature had intended that deduction would be allowable in respect of all types of buildings/accommodation used for the purpose of the business or profession, then the Legislature would not have felt the need to amend the provisions of section 37 so as to make a definite distinction with regard to buildings used as guest houses as defined in section 37(5) and the provisions of sections 31 and 32 would have been sufficient for that purpose - the disallowance made by the AO was right Decided in favour of revenue. Invocation of section 40A(3) - Octroi was paid to the Ahmedabad Municipal Corporation Cash payment - Held that - The Tribunal rightly observed that the transporting company provided its services in the payment of octroi duty on the goods transported by it for the assessee company and recover the amount from the assessee and that the arrangement so made did not shift the obligation to pay octroi duty from assessee to the transport company - The Tribunal observed that the obligation in fact was on assessee to pay octroi duty to the Municipal Corporation on the goods transported within the municipal limits - so far as payment of octroi is concerned as it is mandatory - The payment is made through an agency appointed by the assessee and therefore the payment does not come within the provisions of section 40A(3) read with Rule 6DD(b) Decided against revenue.

Summary

Issues:
1. Allowance of depreciation on guest house
2. Treatment of octroi payment under section 40A(3)

Analysis:
Issue 1: Allowance of depreciation on guest house
The case involved a dispute regarding the allowance of depreciation on a guest house. The Income Tax Appellate Tribunal referred two questions under Section 256(1) of the Income Tax Act, 1961. The first question pertained to the confirmation of the order allowing the claim of depreciation on the guest house. The CIT(A) had allowed the depreciation claim, which was challenged by the revenue before the Tribunal. The Tribunal upheld the CIT(A)'s decision. The revenue contended that the disallowance of depreciation was justified, citing a decision of the Supreme Court in another case. However, the Court, considering the legislative intent to exclude expenses related to guest houses from deduction, ruled in favor of the revenue, upholding the disallowance of depreciation on the guest house.

Issue 2: Treatment of octroi payment under section 40A(3)
The second question revolved around the treatment of octroi payment under section 40A(3). The Tribunal had held that the payment of octroi duty to the Municipal Corporation, facilitated through an agency appointed by the assessee, did not fall under the provisions of section 40A(3). Section 40A(3) provides for the disallowance of expenses exceeding a specified limit if not paid through specified modes. The Court agreed with the Tribunal's reasoning, emphasizing that the payment of octroi was mandatory and made through an appointed agency, thus not attracting the provisions of section 40A(3). Consequently, the Court answered question no.2 in the affirmative, in favor of the assessee.

In conclusion, the Court ruled in favor of the revenue regarding the allowance of depreciation on the guest house but sided with the assessee concerning the treatment of octroi payment under section 40A(3). The Tribunal's order was modified accordingly, allowing the reference to the extent mentioned in the judgment.